WINDING UP A DECEASED ESTATE
The administration process of deceased estate can involve both complicated legal transactions and simple matters such as informing third parties of the passing of the deceased person. The responsibility of the executor or administrator is to ‘stand in the shoes’ of the deceased person and wrap up all of their legal, personal and financial affairs.
THE ROLE OF AN EXECUTOR
The role of an executor or administrator is relatively straightforward; however, in some instances—particularly when a person has not done their estate planning well, or dies without leaving a Will—it can take a long time and be difficult.
The primary duty of the executor or administrator of a deceased estate is to collect the assets of the deceased and distribute them to the beneficiaries. The executor is also the ‘legal personal representative’ of the deceased person, so when necessary the executor is required to institute or defend proceedings on behalf of an estate.
GATHER ESTATE ASSETS AND PAY LIABILITIES
The Executor or Administrator should review the following documents of the deceased to ensure all assets and liabilities have been accounted for:
- Bank and building society passbooks.
- Recent bank statements.
- Share and debenture certificates.
- Life and other insurance policy documents.
- Certificates of title to real estate.
- Latest rates notices in relation to properties.
- Mortgage documents.
- Details of any private insurance (it may provide cover for funeral expenses).
- Unpaid accounts/debts.
- Details of any motor vehicles.
- Latest vehicle registration and insurance papers.
- Funeral account details.
- Any other documents that may be relevant or have any bearing on the deceased’s affairs.
PRESERVE THE ASSETS OF THE ESTATE
The executor of a deceased estate has a duty to ensure that the estate is preserved and properly maintained. This means that:
- if there is any real estate or other property belonging to the deceased, it must be secured and insured until it is sold, or otherwise distributed, in accordance with the deceased’s Will
- if there is money in bank accounts, such funds should be accruing interest at a reasonable rate for the benefit of the residuary beneficiaries.
You should keep these matters in mind at an early stage, as beneficiaries have a personal right against you if they suffer loss as a result of your failure to properly preserve the assets of the estate.
DEFEND THE ESTATE IF LITIGATION PROCEEDINGS ARE INSTITUTED
In the last few years, there has been an increase in the amount of conflict and litigation arising from Wills—and executors and administrators have an extremely important role to play in defending the estate from any such legal attack.
However unlikely it may be that litigation proceedings will impact on any particular estate, you should be aware of the following two types of litigation that can arise. Issues typically arise if someone related to the deceased is unhappy with the terms of the deceased’s Will, or does not believe the Will is appropriate for other reasons.
- Family Provision Applications
Commonly known as ‘contesting a Will’, these applications involve a person applying to the court for a further share from the deceased person’s estate. Each state has different rules about who can apply in a family provision claim and how long they have to do it, so if there is any concern such a claim might be made you should seek legal advice.
If an executor or administrator distributes assets of an estate to beneficiaries before the relevant time limit in their state, they can be personally liable for those funds if an application for further provision is made against the estate.
- Caveats over a Grant
Persons with an ‘interest in the estate’ (usually a beneficiary) are entitled to put a caveat in court over a deceased’s persons estate. This is usually on the basis that the executor is not the appropriate person to administer the estate, or there is concern about whether the Will is valid.
INCOME TAX AFFAIRS
As executor, you will be required to notify the Commissioner of Taxation of the deceased’s death. If the deceased was not earning an income in excess of the tax-free threshold figure, they probably did not lodge income tax returns. However, if the deceased was in fact earning an income in excess of the tax-free threshold, it will be necessary to lodge an income tax return on behalf of the deceased up to the date of their death.
A ‘trust tax return’ may also be required if the estate earns income in excess of the tax-free threshold for the period from the deceased’s date of death up to the date that a Grant of Probate is granted.
We strongly recommend you obtain the services of an accountant to assist you with respect to these issues, particularly before any estate assets are sold or distributed; we are unable to provide any taxation advice.
Because of the ‘pains and troubles’ you may experience as an executor or administrator of a Will, you are entitled to apply for what is known as executor’s commission at the conclusion of the estate. This is calculated as a percentage of the assets of the estate, usually between 0.5% and 3% of the estate, depending on the size of the estate and the degree of work you’ve been required to do.
Payment of commission must be approved in writing by the residuary beneficiaries of the estate, or ordered by the court.